U.S. bonds rose on Tuesday after data from the Institute for Supply Management revealed that the services sector expanded by 5.3 percent during the month of February, according to its non-manufacturing index.
According to Larry Milstein, head of government and agency trading at R.W. Pressprich & Co, bond investors are basically taking a wait-and-see approach with respect to interest rates before making any moves.
“The Fed’s said what they have to say, and now they’re sitting back and watching the data,” said Milstein.
Last week, Federal Reserve Chairman Jerome Powell said that “crosscurrents and conflicting signals” are warranting a patient approach with respect to interest rate policy.
In a prepared testimony to Congress, Powell said that domestic and global developments have “along with ongoing government policy uncertainty, warranted taking a patient approach with regard to future policy changes.” Furthermore, Powell said that economic data will continue to be the primary driver in future Fed decisions, but will be more flexible with the inclusion of new data.
Fixed-income ETFs like the broad-based iShares Core US Aggregate Bond ETF (NYSEArca: AGG) and the Vanguard Total Bond Market ETF (NasdaqGM: BND) were relatively unchanged as of 1:30 p.m. ET.
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The latest ISM data comes after the manufacturing index, which measures U.S. manufacturing activity, reached its lowest level in over two years and expanded at a slower-than-expected pace during the month of February.
Economists polled by Refinitiv expected the index to fall to 55.5, but the final number came in at 54.2 for February versus 56.6 for January. The index level represents its lowest since November 2016.
Based on the latest ISM data, a decline in new orders, production, employment and prices all brought down the index.
“Comments from the panel reflect continued expanding business strength, supported by notable demand and output, although both were softer than the prior month,” said Timothy Fiore, chair of the ISM, said in a statement. “Consumption (production and employment) continued to expand but fell a combined 8.9 points from the previous month’s levels.”
“Exports continue to expand, at slightly stronger rates compared to January. The manufacturing sector continues to expand, but inputs and prices indicate easing of supply chain constraints,” Fiore added.
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